Large-business participation in small-business contracts has received considerable attention in 2006. See 48 GC ¶ 255; 48 GC ¶ 275. Amid consternation that “loopholes” in the Small Business Administration’s policies allow large businesses to perform contracts intended for small businesses, the SBA recently announced regulatory changes that will require firms to recertify their small-business status when options are exercised on their contracts that last longer than five years. Further, under the new regulations, all small businesses must recertify that they are still small at the end of the first five years of any Government contract. According to SBA Administrator Steven C. Preston, the changes “will go a long way toward ensuring that contract awards get in the hands of small business owners, federal agencies get the proper credit toward their small business contracting goals and small business contracts are fairly and accurately reported.” But small-business watchdog, the American Small Business League is not impressed by the changes. The ASBL cites the SBA’s inspector general who urged small-business size recertification on an annual basis, and believes that the five year period is simply too long. “This policy should be evaluated by asking one question,” said Lloyd Chapman, ASBL president, “Will the policy allow the government to report contracts to Fortune 1000 companies as small business awards? The answer is yes.”

"When the federal government hits its small business goals by reporting contracts to Fortune 1000 firms as small business awards, America's small businesses lose out on billions. This is totally unfair and it has to stop."
Lloyd Chapman, President, American Small Business League

A new policy proposed by the Small Business Administration (SBA) and the Office of Federal Procurement Policy (OFPP) will allow the government to continue reporting awards to large companies as federal small business contracts. So claims the the American Small Business League (ASBL), a government watchdog group.

ASBL claims that billions of dollars earmarked for small business is diverted to large corporations. According to ASBL, even though the SBA's Inspector General has urged the agency to implement annual recertification of business size status to prevent fraud and abuse in small business contracting, the SBA has consistently refused to implement it. Instead, ASBL says the agency has adopted a policy that will allow companies to retain their small business status for up to five years. Issued under the guise of improving federal contracting opportunities for small business, this recertification policy will allow the government to continue including contracts to some of the nation's largest companies toward their small business contracting goals.

"This policy should be evaluated by asking one question," stated Lloyd Chapman, president of the ASBL. "Will this policy allow the government to report contracts to Fortune 1000 companies as small business awards? The answer is yes and I'm against it. SBA Administrator Steven Preston and OFPP Administrator Paul Dennett are being deceptive. This policy was designed to help the government, not small firms."

Chapman added, "For over three years the SBA Inspector General has recommended annual recertification of small business size status. This would truly increase contracting opportunities for legitimately small firms by forcing the government to eliminate large businesses from its small-business contracting database. When the federal government hits its small business goals by reporting contracts to Fortune 1000 firms as small business awards, America's small businesses lose out on billions. This is totally unfair and it has to stop."

The SBA announced new rules Tuesday that they say will help small businesses acquire more federal contracts. Under the new rules, small businesses will need to reconfirm their size after five years of their contract, and when they are purchased by or merged with a larger business.

The agency has been criticized for giving larger companies contracts that should be set aside for small businesses. For example, a recent Congressional study shows that companies like Microsoft, Google and Exxon Mobil have all received small business contracts in the past. The report blamed those errors on inaccuracies in a government database.

Not everyone agrees that the new rules will benefit small businesses. Representative Nydia Velázquez (D-NY), the expected chairwoman of the House Small Business Committee, says in the New York Times that the rules fail to address the real problem: "Eighty percent of the contracts miscoded were due to other factors than small businesses simply growing too large, which is all this regulation focuses on."

The Small Business Administration says new rules will prevent big companies from grabbing small-business contracts, but one longtime SBA critic says the rules will do just the opposite.

Lloyd Chapman, president of the American Small Business League, says the agency will allow companies to retain their small business status for up to five years regardless of their size, or whether they are sold or merge with a large firm.

Under the new rules, small businesses will have to recertify their size on long-term contracts when a contract option is exercised, when the company is purchased by or merged with another business, or at the end of the first five years of a contract.

Hounded by charges that the U.S. government overstates the amount of federal contracts that go to small ventures, the Small Business Administration unveiled a plan Tuesday to eliminate loopholes that have allowed large corporations to be counted as small contractors.

The centerpiece of the effort: regulations requiring companies to recertify they are small after every merger or company acquisition, or five years into a long-term contract.

The changes are particularly relevant in Florida, where 98 percent of all companies are small and examples of large corporations squeezing through those loopholes abound. For example, from 2001 to 2004, Tampa's Safety Equipment Co. received millions of dollars' worth of small-business contracts even though it had been bought by Fisher Scientific -- a Fortune 500 company with more than 17,500 employees and annual revenue of almost $5 billion.

Under previous rules, this was perfectly legal. Companies could keep their small-business status for the life of a deal -- often up to 20 years -- even if they were later swallowed up by a larger corporation or outgrew the size limits for their industry.

Under the new regulations, effective June 30, Safety Equipment would have been required to declare its new size when it was bought by Fisher in 2001.

The new rules will not strip small-business contracts from companies that have grown too large, but would bar the government from counting such deals toward its annual goal of channeling 23 percent of all federal dollars to small ventures.

"This regulation will go a long way toward ensuring that contract awards get in the hands of small-business owners, federal agencies get the proper credit toward their small-business contracting goals, and small-business contract awards are fairly and accurately reported," SBA Administrator Steven Preston said in a statement. ``It is a win-win situation for everyone."

But some small-business advocates said the rules don't go far enough.

By establishing a five-year window before existing contractors have to recertify their size, the government is giving a pass to large companies already performing small-business contracts, said American Small Business League President Lloyd Chapman.

Chapman's group has been pushing annual size recertification, a recommendation first proposed by the SBA's inspector general's office a few years ago.

"This is smoke and mirrors," said Chapman of the new regulations. ``It allows large corporations to keep small-business contracts for five more years."

Along with closing those loopholes, the SBA said it will also institute a Small Business Procurement Scorecard to "more aggressively track and monitor" contracting at 24 federal agencies, and hire additional personnel to identify small-business contracting opportunities.

A Miami Herald review of federal contracts performed in Florida during fiscal year 2004 found that more than half of the state's top 20 small-business contractors were actually large corporations with more than 500 employees. Some had started off small and grown large on the back of lucrative contracts, while others had been absorbed by larger companies.

Nationally, the rules were problematic, too, creating embarrassing anomalies where corporate titans such as Bechtel and IBM would appear on the government's list of small-business contractors.